China bank lending surprises market

China's exports rose for the first time in four months in June - a sign that growth is stabilising. The People's Bank of China plans to fine-tune its policy to provide more liquidity for the economy. It has faced an uphill battle to channel money int
The People's Bank of China plans to fine-tune its policy to provide more liquidity for the economy. It has faced an uphill battle to channel money into the real economy even as the banking system is flush with cash.PHOTO: BLOOMBERG
China's exports rose for the first time in four months in June - a sign that growth is stabilising. The People's Bank of China plans to fine-tune its policy to provide more liquidity for the economy. It has faced an uphill battle to channel money int
China's exports rose for the first time in four months in June - a sign that growth is stabilising. PHOTO: AGENCE FRANCE-PRESSE

June figure of $280b suggests measures by central bank are now gaining traction

BEIJING • China's banks made 1.28 trillion yuan (S$280 billion) in new loans in June, handily topping market expectations, while broad money supply growth quickened last month, thanks to the central bank loosening policy to support the slowing economy.

In June, the People's Bank of China (PBOC) cut lending rates for the fourth time in seven months and lowered the amount of cash some banks must keep as reserves.

The June loans data was announced a day before China unveils its second-quarter growth figure. Economists expect a six-year low of 6.9 per cent, and they anticipate further policy easing moves in its wake.

The PBOC will fine-tune its policy to provide more liquidity for the economy, a senior bank official said yesterday, as the recent easing steps help to lower funding costs for companies.

The June lending and money supply figures are "higher than market expectations, indicating recent government measures have gained traction to lift loan demands in the real economy", said Mr Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

  • Financial system stable, says central bank

  • BEIJING • China's central bank said yesterday the country's financial system was basically stable and it would maintain prudent monetary policy, while also lowering borrowing costs and increasing the portion of direct financing in social financing.

    Economic conditions were complicated and they should not be underestimated, according to the People's Bank of China (PBOC) in a statement published on its website.

    It reiterated that it would continue to push forward with interest rate liberalisation as well as keep the yuan exchange rate at a "reasonable level", without providing details.

    PBOC last month gave guidelines for banks to issue large-scale certificates of deposit to individual and institutional investors, paving the way for full interest rate liberalisation. It also repeated that it would maintain a prudent monetary policy and keep liquidity "appropriate".

    The rapid decline of China's previously booming stock market, which by the end of last week had fallen about 30 per cent from a mid-June peak, has been a major headache for top leaders, who were already struggling to avert a sharper economic slowdown.

    The authorities have been rolling out rescue measures almost every day since late last month to calm retail investors.

    The government is due to release second-quarter gross domestic product data today and many economists expect growth to dip below 7 per cent, which would be the weakest performance since the global financial crisis.
    REUTERS

"They also mean China's economy may stabilise in the coming months. Still, we believe the monetary easing will continue."

Banks made a total of 6.56 trillion yuan in new loans in the first six months of 2015, said the PBOC.

June's 1.28 trillion yuan of new lending was well above the 1.05 trillion yuan predicted in a Reuters poll and May's total of 900.8 billion yuan.

The central bank said the broad M2 money supply grew at 11.8 per cent, beating expectations of 11 per cent.

Outstanding yuan loans grew at 13.4 per cent by month-end, missing expectations of 14 per cent.

Total social financing (TSF), a broader measure of overall liquidity in the economy, was 1.86 trillion yuan in June, compared with 1.22 trillion yuan in May.

New yuan loans accounted for 74 per cent of the TSF during the first half of 2015, corporate bonds accounted for 11 per cent, entrusted loans 6 per cent and stock issuance nearly 5 per cent, the data showed.

Meanwhile, China's foreign exchange reserves, the world's largest, fell by US$40 billion (S$54 billion) in the second quarter to US$3.69 trillion - the fourth consecutive quarter of decline amid signs of capital outflows, data from the PBOC data.

The central bank faces an uphill battle to channel money into the real economy even as the banking system is flush with cash, which has pushed down money market rates and stoked concerns about stock market bubbles.

The State Council, China's Cabinet, decided to scrap the country's longstanding loan-to-deposit ratio requirement in late June - the latest measure to reform the country's commercial banking sector and inject more lending into the slowing economy.

In other signs that growth is stabilising, China's exports rose for the first time in four months in June and the nation's consumer price index increased by 1.4 per cent from a year earlier, compared with a 1.2 per cent increase in May.

The statistics authority is scheduled to release the nation's second- quarter gross domestic product today.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 15, 2015, with the headline 'China bank lending surprises market'. Print Edition | Subscribe